Question 1

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Accepted Answer

A)   the level or growth rate of a nominal variable, but not the level or growth rate of a real variable.
B)   the level of a nominal or real variable, but not the growth rate of a real or nominal variable.
C)   the level or growth rate of a real variable, but not the level or growth rate of a nominal variable.
D)   both levels and growth rates of both real and nominal variables.E) A) and B)
F) None of the above

Question 2

According to the long-run Phillips curve, in the long run monetary policy influences

Accepted Answer

A)   inflation but not the unemployment rate; this is consistent with classical theory.
B)   inflation but not the unemployment rate; this is inconsistent with classical theory.
C)   the unemployment rate but not inflation; this is consistent with classical theory.
D)   the unemployment rate but not inflation; this is inconsistent with classical theory.E) B) and D)
F) A) and B)

Question 3

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

Accepted Answer

A)   higher in the short-run and the long-run.
B)   higher in the short-run only.
C)   lower in the short-run and the long-run.
D)   lower in the short-run only.E) None of the above
F) A) and D)

Question 4

Write the equation representing the short-run Phillips curve.

Accepted Answer

Unemployment rate = ...

Question 5

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Accepted Answer

A)   a sacrifice of 5 percent of annual output.
B)   a sacrifice of 5 percent of government spending.
C)   an increase in the unemployment rate of 5 percentage points.
D)   a 5 percent increase in the government budget deficit.E) B) and C)
F) A) and D)

Question 6

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Accepted Answer

A)   both inflation and the unemployment rate are higher than they were prior to the change in policy.
B)   inflation is higher and the unemployment rate is the same as it was prior to the change in policy.
C)   inflation is lower and the unemployment rate is lower than it was prior to the change in policy.
D)   inflation is lower and unemployment is the same as it was prior to the change in policy.E) A) and B)
F) A) and C)

Question 7

Figure 35-4. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the left-hand diagram, the price level is measured on the vertical axis; on the right-hand diagram, the inflation rate is measured on the vertical axis.  
-Refer to Figure 35-4. Assume the figure charts possible outcomes for the year 2018. In 2018, the economy is at point B on the left-hand graph, which corresponds to point B on the right-hand graph. Also, point A on the left-hand graph corresponds to A on the right-hand graph. The price level in the year 2018 is

Accepted Answer

A)   117.25.
B)   114.95.
C)   113.12.
D)   111.10.E) None of the above
F) B) and D)

Question 8

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Accepted Answer

Friedman and Phelps predicted that, over...

Question 9

Considering a plot of the inflation rate and the unemployment rate, one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

Accepted Answer

A)   If so, this might have been the result of a negative supply shock or an increase in expected inflation.
B)   If so, this might been the result of a negative supply shock, or a decrease in expected inflation.
C)   If so, this might have been the result of a positive supply shock, or an increase in expected inflation.
D)   If so, this might have been the result of a positive supply shock, or a decrease in expected inflation.E) None of the above
F) A) and C)

Question 10

A central bank that accommodates an aggregate supply shock

Accepted Answer

A)   increases the money supply, making the inflation rate rise.
B)   increases the money supply, making the inflation rate fall.
C)   decreases the money supply, making the inflation rate rise.
D)   decreases the money supply, making the inflation rate fall.E) None of the above
F) A) and B)

Question 11

A favorable supply shock shifts the short-run Phillips curve

Accepted Answer

A)   right and inflation rises.
B)   right and inflation falls.
C)   left and inflation rises.
D)   left and inflation falls.E) All of the above
F) C) and D)

Question 12

Which of the following results in higher inflation and higher unemployment in the short run?

Accepted Answer

A)   a more expansionary monetary policy
B)   a more contractionary monetary policy
C)   a decrease in the minimum wage
D)   an adverse supply shock such as an increase in the price of oilE) C) and D)
F) None of the above

Question 13

Figure 35-1. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, U represents the unemployment rate.  
-Refer to Figure 35-1. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to

Accepted Answer

A)   point A on the left-hand graph.
B)   point B on the left-hand graph.
C)   point C on the left-hand graph.
D)   point D on the left-hand graph.E) A) and B)
F) A) and C)

Question 14

Figure 35-2
Use the pair of diagrams below to answer the following questions.  
-Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

Accepted Answer

A)   D and 2.
B)   D and 3.
C)   back to C and 1.
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 15

If inflation expectations rise, the short-run Phillips curve shifts

Accepted Answer

A)   right, so that at any inflation rate output is higher in the short run than before.
B)   left, so that at any inflation rate output is higher in the short run than before.
C)   right, so that at any inflation rate output is lower in the short run than before.
D)   left, so that at any inflation rate output is lower in the short run than before.E) None of the above
F) B) and D)

Question 16

Consider two countries: Eastland and Westland. Eastland's long­run Phillips curve sits further to the right than does Westland's long­run Phillips curve. Eastland and Westland are identical in all other ways. In particular, they have the same money supply growth rates. In the long run, compared to Westland, which of the following will we observe in Eastland?

Accepted Answer

A)   higher unemployment and higher inflation.
B)   higher unemployment and the same rate of inflation.
C)   lower unemployment and higher inflation.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 17

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Accepted Answer

A)   the trade-off between inflation and unemployment did not apply in the long run This claim is consistent with monetary neutrality in the long run.
B)   the trade-off between inflation and unemployment did not apply in the long run. This claim is inconsistent with monetary neutrality in the long run.
C)   the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is consistent with monetary neutrality in the long run.
D)   the trade-off between inflation and unemployment applied in both the short run and the long run. This claim is inconsistent with monetary neutrality in the long run.E) C) and D)
F) B) and C)

Question 18

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

Accepted Answer

A)   the short-run Phillips curve shifts right.
B)   the short-run Phillips curve shifts left.
C)   the long-run Phillips curve shifts right.
D)   the long-run Phillips curve shifts left.E) A) and B)
F) A) and C)

Question 19

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

Accepted Answer

Eventually the economy moves back to the...

Question 20

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

Accepted Answer

A)   right. Overall, unemployment moves above its natural rate.
B)   right. Overall, unemployment moves below its natural rate.
C)   left. Overall, unemployment moves above its natural rate.
D)   left. Overall, unemployment moves below its natural rate.E) All of the above
F) B) and D)

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

Correct Answer
verified

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

Correct Answer
verified
Eventually the economy moves back to the...
View Answer

According to the long-run Phillips curve, in the long run monetary policy influences

Correct Answer
verified

A favorable supply shock shifts the short-run Phillips curve

Correct Answer
verified

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Correct Answer
verified

A central bank that accommodates an aggregate supply shock

Correct Answer
verified

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Correct Answer
verified

If inflation expectations rise, the short-run Phillips curve shifts

Correct Answer
verified

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

Correct Answer
verified

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct Answer
verified
Friedman and Phelps predicted that, over...
View Answer

Correct Answer
verified

Correct Answer
verified

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Correct Answer
verified

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

Correct Answer
verified

Write the equation representing the short-run Phillips curve.

Correct Answer
verified
Unemployment rate = ...
View Answer

Considering a plot of the inflation rate and the unemployment rate, one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

Correct Answer
verified

Which of the following results in higher inflation and higher unemployment in the short run?

Correct Answer
verified

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

Correct Answer
verified

Correct Answer
verified

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Correct Answer
verified

Exam 35: The Short-Run Trade-Off Between Inflation and Unemployment

Suppose the economy is in long-run equilibrium at an inflation rate of 1% Then inflation expectations rise to 2% and inflation rises to 3%. The increase in expected inflation shifts the short-run Phillips curve

Correct AnswerverifiedShow Answer

Friedman and Phelps argued that it was dangerous to think of the short-run Phillips curve as a menu of options for policymakers to choose from. Explain the logic of their argument.

Correct AnswerverifiedEventually the economy moves back to the...View AnswerShow Answer

According to the long-run Phillips curve, in the long run monetary policy influences

Correct AnswerverifiedShow Answer

A favorable supply shock shifts the short-run Phillips curve

Correct AnswerverifiedShow Answer

Suppose the Federal Reserve makes monetary policy more expansionary. In the long run

Correct AnswerverifiedShow Answer

A central bank that accommodates an aggregate supply shock

Correct AnswerverifiedShow Answer

Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires

Correct AnswerverifiedShow Answer

If inflation expectations rise, the short-run Phillips curve shifts

Correct AnswerverifiedShow Answer

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

Correct AnswerverifiedShow Answer

What did Friedman and Phelps predict would happen if policymakers tried to move the economy upward along the Phillips curve? Did the behavior of the economy in the late 1960s and the 1970s prove them wrong?

Correct AnswerverifiedFriedman and Phelps predicted that, over...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the late 1960s, Milton Friedman and Edmund Phelps argued that

Correct AnswerverifiedShow Answer

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is

Correct AnswerverifiedShow Answer

Write the equation representing the short-run Phillips curve.

Correct AnswerverifiedUnemployment rate = ...View AnswerShow Answer

Considering a plot of the inflation rate and the unemployment rate, one might conjecture that the short run Phillips curve was further to the right in the first part of the 2000's than it was in the last part of the 1990s and 2000.

Correct AnswerverifiedShow Answer

Which of the following results in higher inflation and higher unemployment in the short run?

Correct AnswerverifiedShow Answer

Other things the same, if the central bank decreases the rate at which it increases the money supply, then in the long run

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Milton Friedman argued that the Fed's control over the money supply could be used to peg

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Eventually the economy moves back to the...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Friedman and Phelps predicted that, over...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Unemployment rate = ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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